Analysis: Minimum wage plan a new test for Obama

President Barack Obama is greeted before his State of the Union address during a joint session of Congress on Capitol Hill in Washington, Tuesday Feb. 12, 2013.

WASHINGTON — If anything illustrated President Barack Obama's new sense of self-confidence, it was his State of the Union call for an increase in the national minimum wage.

For much of the past two years, the president and his aides have worked to shed an image that he was anti-business, to bury his once-upon-a-time dismissal of bankers as "fat cats," to invite corporate and entrepreneurial voices into the White House.

The result was that one of the cogs of the Democratic Party, the organized labor movement, felt left adrift by the president.

No more.

In a move that cheered union leaders and rankled the business community, the president proposed raising the hourly minimum wage from $7.25 to $9 by the end of 2015 and linking future increases to inflation. The current rate has been in place since 2009.

"Working folks shouldn't have to wait year after year for the minimum wage to go up while CEO pay has never been higher," Obama said Tuesday as Democrats rose from their seats while most Republicans sat stone-faced.

Whether Obama can win in a divided Congress, where Republicans control the House and Democrats the Senate, remains to be seen. But the president's calculation is clear: If there was a time to deliver on a 2008 campaign promise it is now. And if there was an issue where labor would have his back, this would be it.

"Working people have had their workloads dramatically increased during the economic crisis, while their pay has fallen," Damon Silvers, the director of policy and special counsel at the AFL-CIO, said Tuesday night. "The president spoke tonight about raising wages as a goal of our nation's economic policy — and the labor movement will mobilize behind that goal."

To be sure, the president's proposal is more modest than it was in 2008, when he called for a $9.50 minimum hourly wage by 2011.

And while he cast the issue as one of economic fairness, he also made the economic argument that higher wages would mean more customers for businesses. He reminded his audience that even his 2012 rival Mitt Romney had at one point supported automatic cost-of-living increases to the minimum wage, though Romney later modified his stance.

The issue of economic inequality — its severity a matter of debate between liberals and conservatives — has long preoccupied Obama. In his first term, however, the recession required his immediate attention. And while his health care law was one attempt at addressing those disparities, the Republican gains of the 2010 midterm elections chastened him and his focus shifted to a debate with Congress over fiscal restraint.

But his economic aides continued to cite growing wage gaps between rich and poor as a vexing issue. A 2011 study by the Congressional Budget Office found that from 1979 to 2007, the wealthiest 1 percent of the population saw their after-tax income grow by 275 percent. For the same period, the 60 percent of the population considered middle-income saw their after-tax income grow just shy of 40 percent.

"We gather here knowing that there are millions of Americans whose hard work and dedication have not yet been rewarded," Obama said Tuesday. "Our economy is adding jobs - but too many people still can't find full-time employment. Corporate profits have rocketed to all-time highs - but for more than a decade, wages and incomes have barely budged."

The issue has the kind of populist appeal that Obama can take directly to the public. White House aides believe that after Obama's solid re-election, Republicans are on their heels and are vulnerable to public pressure. If Republicans stand fast against an increase in the minimum wage, Democrats will be sure to use it against them during next year's midterm election campaigns.

Obama's attempts to cultivate business leaders and corporate executives could help forge a compromise. Past increases in the minimum wage have come with tax sweeteners and other benefits for the private sector, particularly small businesses. A wage hike could also become part of negotiations over corporate tax rates, which Obama is willing to overhaul if they increase revenue. Republicans could fight back, saying they might settle for one or the other, but not both.

"A minimum wage hike right now would be one more factor driving up costs for employers and creating headwinds for job creation, especially among the small businesses that create most of our nation's new jobs," said David French of the National Retail Federation. "Before we debate the federal minimum wage, we need a broad, comprehensive plan from Washington that encourages businesses to plan, invest and grow this economy."

Daniel S. Hamermesh, an economics professor at the University of Texas at Austin, agrees — to a point.

"Raising the minimum wage will kill off a few jobs and is a slightly harmful idea. Not a disaster, and some people will benefit. But it is a job-killing bill. There are better things to do," he said. "On the other hand, the proposal to tie the minimum wage to the cost of living is nearly excellent."

He said that if the increases were linked to average wage hikes instead of the cost of living, that could even make an initial increase to $9 an hour worthwhile.